Hurricanes, Housing Market Activity and Coastal Real Estate Values
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Abstract
Assuming hurricane landfalls are random events for a given coastal community, a single storm or even a pair of storms should have no appreciable effects on property values. Rational home buyers or sellers recognize the possibility of “bad luck” with a single or pair of “bad draws” and thus make no adjustment in their home-buying willingness or pricing expectations as a result of one or two hurricane strikes. However, we hold that the increased frequency of strikes in our study area does not favor housing prices. With successive hurricanes near Wilmington, North Carolina, over a relatively brief period, we believe that housing market participants in that region may no longer view the landfalls as random, and, consequently, home prices may fall. We develop a standard hedonic pricing model that permits us to examine real estate values following these natural disasters. After controlling for local economic and housing activity and costs of home financing – factors often influencing housing prices - we find little separable response by the market to initial hurricane strikes, with the housing market possibly perceiving them as nothing more than “bad luck.” However, and associated perhaps with changing market perceptions of the susceptibility of the region to hurricanes, we observe adverse impacts on home selling prices in the months following the most recent hurricanes. These declinations in value are progressively greater following the landfalls of Hurricanes Bonnie and Floyd in 1998 and 1999, respectively.
